DOJ: FedEx Indicted For
Its Role In Distributing Controlled Substances And Prescription Drugs

July 18, 2014

A federal grand jury in San Francisco indicted FedEx Corporation, FedEx
Express, Inc., and FedEx Corporate Services, Inc., today, with
conspiracies to traffic in controlled substances and misbranded
prescription drugs for its role in distributing controlled substances
and prescription drugs for illegal Internet pharmacies, announced United
States Attorney Melinda Haag, Drug Enforcement Administration (DEA)
Special Agent in Charge Jay Fitzpatrick, and Food and Drug
Administration (FDA) Acting Director of the Office of Criminal
Investigations Philip J. Walsky.

According to the indictment, beginning in approximately 1998, Internet
pharmacies began offering consumers prescription drugs, including
controlled substances, based on the provision of information over the
Internet. While some Internet pharmacies were managed by well-known
pharmacy chains that required valid prescriptions and visits to the
patient’s personal physician, others failed to require a prescription
before filling orders for controlled substances and prescription drugs.
Rather, these Internet pharmacies filled orders based solely on the
completion of an online questionnaire, without a physical examination,
diagnosis, or face-to-face meeting with a physician. Such practices
violated federal and state laws governing the distribution of
prescription drugs and controlled substances.

According to the indictment, from at least as early as 2004, DEA, FDA
and members of Congress and their staff informed FedEx that illegal
Internet pharmacies were using its shipping services to distribute
controlled substances and prescription drugs in violation of the
Controlled Substances Act (CSA), Food, Drug and Cosmetic Act (FDCA), and
numerous state laws. In 2004, FedEx established an Online Pharmacy
Credit Policy requiring that all online pharmacy shippers be approved by
the Credit Department prior to opening a new account. The stated reason
for this policy was that many Internet pharmacies operated outside
federal and state regulations over the sale of controlled drugs and many
sites had been shut down by the government without warning, leaving a
large balance owed to FedEx. According to the indictment, FedEx also
established a Sales policy in which all online pharmacies were assigned
to a “catchall” classification to protect the commission-based
compensation of its sales professionals from the volatility caused by
online pharmacies moving shipping locations often to avoid detection by
the DEA.

According to the indictment, as early as 2004, FedEx knew that it was
delivering drugs to dealers and addicts. FedEx’s couriers in Kentucky,
Tennessee, and Virginia expressed safety concerns that were circulated
to FedEx Senior management, including that FedEx trucks were stopped on
the road by online pharmacy customers demanding packages of pills, that
the delivery address was a parking lot, school, or vacant home where
several car loads of people were waiting for the FedEx driver to arrive
with their drugs, that customers were jumping on the FedEx trucks and
demanding online pharmacy packages, and that FedEx drivers were
threatened if they insisted on delivering packages to the addresses
instead of giving the packages to customers who demanded them. In
response to these concerns, FedEx adopted a procedure whereby Internet
pharmacy packages from problematic shippers were held for pick up at
specific stations, rather than delivered to the recipient’s address.

FedEx is charged in the indictment with conspiring with two separate but
related Internet pharmacy organizations: the Chhabra-Smoley
Organization, from 2000 through 2008, and Superior Drugs, from 2002
through 2010. In each case, FedEx is alleged to have knowingly and
intentionally conspired to distribute controlled substances and
prescription drugs, including Phendimetrazine (Schedule III); Ambien,
Phentermine, Diazepam, and Alprazolam (Schedule IV), to customers who
had no legitimate medical need for them based on invalid prescriptions
issued by doctors who were acting outside the usual course of
professional practice. The indictment charges that FedEx conspired with
these organizations to violate the CSA, 21 U.S.C. §§ 841, 846, and the
FDCA, 21 U.S.C. §§ 331, et seq.

According to the indictment, FedEx began delivering controlled
substances and prescription drugs for Internet pharmacies run by Vincent
Chhabra, including RxNetwork and USA Prescription, in 2000. When Chhabra
was arrested in December of 2003 for illegally distributing controlled
substances based on a doctor’s review of an on-line questionnaire,
Robert Smoley took over the organization and continued the illegal
distribution of controlled substances and prescription drugs through
FedEx.

According to the indictment, FedEx began delivering controlled
substances and prescription drugs for Superior Drugs in 2002. FedEx’s
employees knew that Superior Drugs filled orders for online pharmacies
that sold controlled substances and prescription drugs to consumers
without the need for a face-to-face meeting with, or physical
examination or laboratory tests by, a physician.

According to the indictment, FedEx’s employees knew that online
pharmacies and fulfillment pharmacies affiliated with both the
Chhabra-Smoley organization and Superior Drugs were closed down by state
and federal law enforcement agencies and that their owners, operators,
pharmacists, and doctors were indicted, arrested and convicted of
illegally distributing drugs. Nevertheless, FedEx continued to deliver
controlled substances and prescription drugs for the Chhabra-Smoley
organization and Superior Drugs.

“The advent of Internet pharmacies allowed the cheap and easy
distribution of massive amounts of illegal prescription drugs to every
corner of the United States, while allowing perpetrators to conceal
their identities through the anonymity the Internet provides,” said U.S.
Attorney Melinda Haag. “This indictment highlights the importance of
holding corporations that knowingly enable illegal activity responsible
for their role in aiding criminal behavior.”

“Pharmaceutical
drug abuse is a serious problem affecting millions of consumers in the
United States,” said DEA Special Agent in Charge Jay Fitzpatrick. “While
DEA is committed to ensuring patients receive legitimate prescriptions,
today’s action should send a strong message that corporations that
participate in illegal activity risk investigation and prosecution.”

“Illegal Internet pharmacies rely on illicit Internet shipping and
distribution practices. Without intermediaries, the online pharmacies
that sell counterfeit and other illegal drugs are limited in the harm
they can do to consumers,” said Philip J. Walsky, Acting Director, FDA’s
Office of Criminal Investigations. “The FDA is hopeful that today’s
action will continue to reinforce the message that the public’s health
takes priority over a company’s profits.”

FedEx has been summoned to appear in federal court in San Francisco on
July 29, 2014.